A guide to understanding taxes


Learn more about the taxes you might have to pay and when to pay them.


Go to the Stock Plan Resource Center overview

Key takeaways


Your company generally withholds taxes, if required, depending on your award, plan, and country of residence.


You may be able to pay any taxes due with shares or cash (subject to plan rules). Go to Fidelity NetBenefitsLog In Required to find your plan-related documents.


You may be subject to additional taxes when you sell your shares, depending on your country's tax rules.

How your awards and plans are taxed


Generally, your awards or plans can be considered taxable, depending on the type. When you sell your shares, you may be subject to additional taxes, depending on your country's tax rules.


The Global Tax Guide1 provides information about some of the tax laws of various countries, including when taxation occurs, your tax-filing responsibilities, and any tax withholding. Each country's individual guide has links to the website of their national tax agency as well as other resources for additional information.


Understanding your taxes


How much you'll pay in taxes depends on the type of award or plan you have, the tax withholding methods available to you (if tax withholding is required), and your country's tax rules. You should consult a professional advisor to determine what makes the most sense for you.


What is tax withholding?


When you take ownership of your stock plan shares (or cash), you are being "paid" with shares (or cash) and may owe taxes. This could also occur when you purchase shares through an ESPP.


The taxes due are generally covered by withholding shares or cash from your award or plan, though this varies by the type of award, the plan, and/or the country of residence.

Tax withholding methods


There are 3 tax withholding methods that companies commonly use to cover taxes on your award—selling some of your shares, holding back some of the shares, or using cash from your account:

Method How it works
Net shares Your company withholds enough of your shares to pay the taxes due.
Sell to cover Your company sells a portion of your shares to pay the taxes due.
Pay cash Cash from your account is used to pay the taxes due.

Your company may let you choose how to withhold taxes on your award, or it may have a mandatory default method and rate of withholding. Go to NetBenefitsLog In Required to find your plan-related documents and details of the available tax withholding methods, information about any decision windows, and how to estimate your tax withholding.


Learn more about the different plan types:

A guide to restricted stock units (RSUs)
A guide to restricted stock awards (RSAs)
A guide to stock options (SOPs)
A guide to employee stock purchase plans (ESPPs)
A guide to performance awards
A guide to stock appreciation rights (SARs)

Withholding taxes on stock options


How you choose to exercise your stock options determines how your taxes are withheld. There are 3 common ways you can exercise stock options:


Exercise type Description
Exercise and sell Exercise your stock options and immediately sell all the shares. Some of the proceeds are used to cover the cost of purchasing the shares along with any applicable fees and taxes. The remaining cash is deposited into your account.
Exercise and sell to cover Exercise your stock options by using cash in your account to cover the cost of purchasing the shares along with any applicable fees and taxes. All the shares are deposited into your account.
Exercise and hold Exercise your options and immediately sell enough of the shares to cover the cost of purchasing the shares along with any applicable fees and taxes. The remaining shares are deposited into your account. 

A guide to stock options (SOPs)
A guide to stock appreciation rights (SARs)


Taxes on your SAYE plan (UK residents only)

If you're a UK resident, an advantage of a SAYE plan is that you pay no UK Income Tax or National Insurance Contributions (NIC) on any gain between what you paid for the shares and their value at maturity.


Go to NetBenefitsLog In Required and check your plan-related documents to find out more about how much tax you could pay.


A guide to save as you earn (SAYE)

Taxes on your SIP plan (UK residents only)


If you're a UK resident, the tax you pay depends on how long you hold on to your shares and on the market value of the shares:


Holding period Taxes
5 years or more – No Income Tax or NIC
– No Capital Gains Tax (CGT) if sold from SIP
– CGT may apply if shares are moved to another broker before selling them
3-5 years – Reduced Income Tax and NIC
– CGT may apply
Less than 3 years – Full Income Tax and NIC
– CGT may apply

A guide to share incentive plans (SIPs)

Your Stock Plan Resource Center


The Stock Plan Resource Center provides the help and education you need to understand how your equity compensation works, including taxes, and selling and managing shares.


Visit the Stock Plan Resource Center

Frequently asked questions

Key takeaways


Certifying your account helps to ensure proper tax withholding in the US, based on your country of residence.


If you are not certified with the W-8BEN IRS form, you may be subject to additional tax withholding.


You must recertify at least every three years to avoid additional tax withholding.

Certify your tax status


You may be required to certify your account to avoid additional tax withholding in the US. The Internal Revenue Service (IRS) Form W-8BEN is used to certify that you are not a US citizen, not living in the US, and therefore not subject to US tax withholding. Since your account is based in the US, you need to complete this certification to help ensure you are being taxed correctly for your country of residence. Without this certification, you may be subject to additional tax withholding on the proceeds of certain transactions, such as selling stock or receiving dividends.


Your W-8BEN tax status expires on 31 December of the third year after submitting the form. To avoid additional tax withholding after that date, you must recertify your tax status. Fidelity will send you a reminder when you have to certify for the first time and when your recertification is due. If there are any changes in your circumstances that cause any information on the form to no longer be correct or valid, you'll need to complete a new W-8BEN form with updated information.


To find out if you need to certify your account, log in to NetBenefitsLog In Required.

Your Stock Plan Resource Center


The Stock Plan Resource Center provides the help and education you need to understand how your equity compensation works, including taxes, and selling and managing shares.


Visit the Stock Plan Resource Center

Frequently asked questions

  • What happens if I do not complete Form W-8BEN?

    Not completing Form W-8BEN means you are not eligible for tax treaty rates, and will likely pay excess taxes on your equity compensation when you sell the shares or receive dividends. If you don't have a valid Form W-8BEN, we're required to withhold taxes from the sale of securities (including your company shares) at a rate of 24%. This is referred to as "backup withholding". We're also required to withhold tax at 30% on any interest and dividend payments you receive when you don't complete this form, instead of using any potential reduced rate under any tax treaty that may exist between the US and your country of residence.

  • What is backup withholding?

    Backup withholding is a form of tax withholding that all recordkeepers, including Fidelity, are required to make on gross proceeds from stock sales, interest income, dividends, or other kinds of payments that are reported on the various types of Form 1099 when an account holder is undocumented or does not certify their tax status.

    If you have not completed and filed Form W-8BEN with the broker, you will be subject to 24% backup withholding on the gross proceeds from sales of securities (including your company shares) and 30% nonresident alien tax withholding on US-sourced dividend and interest payments you receive.

  • On Form W-8BEN, what is an FTIN?

    The FTIN (foreign tax identification number) is your local tax number, issued by the government of your country of residence. For example, Social or National Insurance number, Identification Card number, PAN.

Resources

Equity compensation strategies during market volatility (PDF)


Review these 7 important considerations when making decisions.

Stock plan glossary


What's that word? Find definitions for commonly used terms.